Last year Canada’s government led by Justin Trudeau set forth its plan to invest large sums in the country’s infrastructure by emulating Australia’s Asset Recycling program. The plan was proposed by the government’s then-new Advisory Council on Economic Growth, led by the global head of McKinsey. The idea was for the government to sell or long-term lease revenue producing assets (such as airports and seaports) and use the proceeds to invest in other needed infrastructure, rather than issuing bonds that would have to be paid off by taxpayers. In the airports area, the Finance Minister and the Transport Minister commissioned a valuation study by Credit Suisse to get some idea what the eight largest airports are worth in today’s market.

That was then; this is now. The managements of the Calgary, Ottawa, and Vancouver airports in February launched an anti-privatization website highlighting alleged “risks” of selling the airports. They have placed op-eds in leading Canadian newspapers claiming that investor ownership would lead to higher costs for air travelers using those airports—or even drive more such passengers across the border to nearby U.S. airports. (That cross-border phenomenon has grown fairly large in recent years due to the requirement that Canada’s nonprofit airport authorities must pay up to 12% of their gross revenue to the federal government as “Crown Rent,” since the feds still own the land on which the airports sit—a provision that would be eliminated under privatization.)

City council members in Montreal and Toronto have also inveighed against privatization, though those governments have no direct role in the process. The nonprofit airport boards typically include only one or two members appointed by local councils. Montreal airport’s CEO was one of the prime movers in advocating privatization, prior to his recent retirement, and its current management has taken no public position on the question. Toronto’s Pearson International Airport recently surprised many people by saying they would welcome private capital investment, in part to pay for the addition of a major transport hub at the airport.

A national poll conducted by Angus Reid Forum in April found that 53% of Canadians polled thought airport privatization was a bad idea. But the pollsters noted that 51% of those polled had never heard of the issue before being contacted for the poll, raising questions about what they thought privatization would mean.

In the face of all this, the federal government is now sending vague and mixed signals. Finance Minister Bill Morneau will not release the results of the Credit Suisse valuation study, and Transport Minister Marc Garneau has been noncommittal about whether airport privatization will go forward. And last month, Prime Minister Trudeau downplayed asset recycling, telling reporters he’s more interested in attracting outside capital via his proposed national infrastructure bank than by selling assets.

But there are several reasons for Canadians to take a harder look at what’s involved. First of all, though we don’t know what valuations Credit Suisse came up with, a February study by Steven Robins for the C. D. Howe Institute estimated the market value of the eight airports at between $7.2 billion and $16.6 billion. Obtaining ownership of the airports by making a one-time payment to the Canadian government would end the requirement to pay Crown Rent, immediately reducing the airports’ cost base. But wouldn’t passengers end up stuck paying for the billions in acquisition costs, as the opponents of privatization charge?

Here’s where market incentives come into play. Though the airports may look like monopolies, they face various forms of competition—passenger rail, for example, between Montreal and Toronto, and driving to nearby U.S. airports as many Canadians already do. Those competitive alternatives will limit how much passengers can be charged to use the newly privatized airports. So the airports’ alternative way to raise more revenue will be to embrace increased retail opportunities for passengers. In a March 23, 2017 policy memo to the Transport Minister, the Howe Institute’s Ben Dachis and Vincent Thivierge compared five privatized Australian airports with the eight large Canadian airports. The Australian ones derive the majority of their revenue from voluntary purchases by passengers, in sharp contrast to Canadian practice of getting the large majority of their revenue from mandatory fees. They also point out that the Canadian government’s Crown Rent—a charge of up to 12% of gross airport revenue—is a disincentive to coming up with new sources of voluntary passenger revenue.

In my view, Canada’s federal government is missing a bet by backing away from Asset Recycling based on airport privatization. But instead of making an all-or-nothing decision, a sensible middle way would be to allow those airports that want to escape from Crown Rent to be converted to investor ownership, with the proceeds going to the feds to compensate them for giving up the next several decades worth of rent. That would create a natural experiment, allowing everyone to see which airports worked better in coming decades.

A line in the White House’s “skinny budget” document in March contained the following sentence: “In addition, the Budget reflects TSA’s decision in the summer of 2016 to eliminate the Behavior Detection Officer program, reassigning all those personnel to front line airport security operations.” Not a word of this had appeared in any of the aviation and security updates I receive each weekday, nor in the various airport and aviation magazines I read.

That same month I attended a social event in Los Angeles and ended up talking with an official of one of the metro area’s airports. I asked him about this, and his answer was quite different. Far from being reassigned, he told me that his airport’s BDOs are still doing randomized interactions with people at the airport, but now their focus is on airport and contractor employees, rather than passengers. This is part of something called TSA Playbook, he said, and it’s a national program operating at most airports with TSA presence.

I went online to see what I could find about this program and discovered that the program is not new. According to a heavily redacted 2012 report from the Center for Evidence-Based Crime Policy at George Mason University, “TSA’s Security Playbook,” the program was begun in December 2008 and involved BDOs from the outset. The report was commissioned by the Department of Homeland Security, at the request of TSA.

The basic idea of Playbook is for BDOs to carry out a series of “plays”—specific activities designed to discover and/or disrupt security breaches. A matrix (Figure 25 of the GMU report) shows how many “plays” that focused on three different objectives (deter offenders, increase guardianship, and reduce vulnerability) and two different locations (employee areas or public areas) were carried out using eight different types of “plays.” Many plays are carried out solely by TSA personnel, but others require cooperation from other entities. Unfortunately for purposes of assessing the effectiveness of the Playbook, virtually all the relevant outcome details are blacked out.

My conclusion is that the BDO program has not been eliminated, contrary to whatever TSA may have led the new White House team to believe. It would appear that the BDOs are the principal staff for the TSA Playbook effort, which might well have been revamped in summer 2016. This looks like a situation that demands a more detailed study by the Government Accountability Office or the DHS Inspector General.

After the successful 40-year lease of the San Juan International Airport in 2013, only one applicant remained in the FAA’s Airport Privatization Pilot Program: Airglades Airport in Florida, whose steps toward getting FAA approval slowly continue. But in recent months, two more applicants have joined the queue. Westchester County Airport (HPN) in New York came first, as I reported previously. And the latest candidate is St. Louis’s Lambert International Airport, whose application was approved last month. Perhaps the US airport privatization tide is beginning to turn.

St. Louis Mayor Lyda Krewson said the U.S. DOT’s announcement that the city’s application had been approved “is a great opportunity to explore a public-private partnership.” Lambert is classed by the FAA as a medium hub, with nearly 14 million passengers in 2016. If the privatization goes through, it would be the largest one to date, with 75% more passengers than San Juan. Since Southwest is by far the largest carrier serving the airport, with American in second place, the 65% airline approval requirement should not be difficult to achieve, assuming the terms of the deal are similar to those approved by airlines at Chicago Midway, San Juan, and in a tentative deal last fall for the Westchester County Airport.

Speaking of Westchester, as I reported last issue, the County Legislature rejected the tentative deal with Oaktree Capital Management that had been negotiated (without competition) by the County Executive. Opting for a competitive process, the Legislature hired Frasca & Associates to develop a competition plan, work out a schedule, and draft a Request for Proposals. The RFP duly appeared early last month, and calls for bidders’ proposals to be submitted by July 14th. The goal is to have the winning bidder selected and the deal negotiated before the end of the year.

The plan by Airglades International Airport, LLC to convert the small Hendry County (FL) Airport into a cargo reliever for Miami International Airport 70 miles to the south has taken several further steps. The Draft Environmental Assessment was recently completed, and was discussed at a public hearing on April 19th. Written comments are due to the County Administrator by May 5th.

Finally, though not related to the FAA Pilot Program, the privately financed passenger terminal for Paine Field north of Seattle continues to make progress. In April, the company that is planning the two-gate terminal—Propeller Airports—reached agreement with an environmental group concerned about the project’s impact on stormwater runoff in Japanese Gulch. The Snohomish County government, which owns the airport, said it is prepared to issue a grading permit for construction once the hearing examiner signs the agreement Propeller reached with the Watershed Council.

In announcing the new ban on laptops and other electronic devices larger than a smartphone in the cabins of planes departing to the United States from 10 airports in the Middle East and North Africa, the Department of Homeland Security cited as its rationale new intelligence information about terrorist bomb-makers who have installed explosives inside the battery compartments of such devices. But this logic is questionable on a number of grounds.

First, why only those 10 airports? Jens Flottau in Aviation Week pointed out that at four of the airports—Abu Dhabi, Doha, Dubai, and Kuwait—U.S. Customs operates preclearance facilities. He also wrote that “Anyone who has ever traveled through Dubai’s airport has witnessed now much investment went into state-of-the-art security equipment and staffing to ensure that international standards are maintained.”

Second, as Flottau and other aviation commentators have pointed out, the ban applies only to nonstop flights from those airports to the United States. This ignores the obvious way to route around the restriction: “The terrorist could simply take a connecting service from, say, Dubai or Cairo via Frankfurt or Milan to the U.S.”

Another major problem is the trade-off between air safety and aviation security that is posed—but not addressed—by this decision. As Alan Levin pointed out in an April 7th Bloomberg article, the laptop ban poses a new risk of fires in the cargo compartments of the affected planes. The Flight Safety Foundation was one of the first to raise this concern, noting that the ban was announced at the same time as international safety agencies are banning bulk shipments of rechargeable lithium-ion batteries in the cargo bays of commercial airliners, since such batteries can catch fire or explode. Cabin crew have been trained to deal with such incidents in the cabin, but the cargo holds are inaccessible during flight. As Levin notes, the FAA has logged 31 cases of such in-cabin battery incidents, and the National Transportation Safety board has investigated three cargo planes that were destroyed by fires “attributed at least in part to lithium batteries.”

In addition, Karen Walker reported in Aviation Daily that the FAA issued a safety bulletin to airlines (but has not released it to the public) in response to the laptops ban, making sure airlines were aware of the increased cargo-hold fire risk in such cases. Similar bulletins from the International Civil Aviation Organization and the European Aviation Safety Agency “were based on language in the original FAA bulletin,” according to an FAA spokesperson.

What DHS should have done is carry out an overall risk assessment, validated by external peer review, assessing the tradeoffs between cargo-hold fires resulting from the ban versus the avoided losses from in-cabin laptop bombs without the 10-airport ban. And if the results looked unfavorable to the ban, the obvious alternative would be to insist on better security at the designated airports.

A few days after ban was announced, the Wall Street Journal‘s Robert Wall and colleagues reported on the number of airline seats to be affected by the ban. The vast majority were for flights to the United States operated by Emirates (from Dubai), Turkish Airlines (from Istanbul), Qatar Airways (from Doha), and Etihad (from Abu Dhabi). A full 86% of all seats were accounted for my just those four airports and the respective airlines. Interestingly, the U.K. adopted a laptops ban along similar lines, but did not include any of those four airports.

As Madhu Unnikrishnan pointed out in Aviation Daily (March 23rd), the U.S. ban could have a chilling effect on business travel via Middle East hubs, and could shift significant travel to European carriers. This is also consistent with the concerted efforts of the three legacy U.S. carriers to reduce competition from Emirates, Etihad, and Qatar. Is this bizarre decision a first step toward an “America first” aviation policy?

There is growing concern among consumer groups and members of Congress about reduced competition among U.S. airlines. Due to mergers over the last decade or so, we now have only four major carriers—American, Delta, Southwest, and United—where there used to be a dozen or so. Airline deregulation was premised on the idea that the airline business is naturally competitive, rather than being a utility that worked best when a government regulator (the now-defunct Civil Aeronautics Board) parceled out routes to just one or two carriers and prevented price competition among them. The result was high fares and limited choices for would-be passengers.

But as the Business Travel Coalition pointed out in a March 3rd Industry Analysis, there are tools at the disposal of U.S. carriers that serve to limit competition in ways that do not serve the best interests of air travelers. Among the anti-competitive tools BTC cited are airlines lobbying against local, self-help airport Passenger Facility Charges (PFCs), incumbent carriers hogging the slots at slot-controlled airports like Reagan National (DCA) and LaGuardia (LGA), and major-carrier attacks on U.S. Open Skies policy. If Congress were serious about removing barriers to airline competition, what policies could our elected representatives support?

First on my list would be to un-cap airport PFCs, a self-help financing mechanism that has been key to numerous capacity expansion projects at airports experiencing growth in recent years. Airlines continue to lobby against any increase in the current federal cap of $4.50 per passenger (unchanged since 2000), and they continue to bamboozle conservative taxpayer groups (Americans for Tax Reform and National Taxpayers Union) into describing these local-self-help fees as onerous taxes. BTC points out the hypocrisy of this approach, contrasting a potential $2 or $3 increase in an airport‘s PFC with the average of $16 in ancillary fees passengers currently pay to airlines.

PFCs were introduced originally to give airports a way to expand capacity that could not be vetoed by incumbent airlines under long-standing “majority-in-interest” clauses in long-term lease agreements that cover the fees paid by airlines to use an airport. MII clauses have long been used by incumbents to veto or reduce in size proposed increases in airport capacity that would permit entry by non-incumbent carriers. Although long-duration use-and-lease agreements between airports and airlines are gradually fading away as they reach the end of their terms, and there is also a trend toward more common-use gates, existing agreements with MII clauses and exclusive-use gates serve as significant barriers to entry—and hence to increased airline competition. Since Congress has no business abrogating existing legal contracts, its best alternative is to support airports’ efforts to increase local self-help PFCs, which are exempt from MII clauses since these are fees paid by passengers to the airport, rather than fees paid by airlines to the airport. And as I’ve reported previously, a growing fraction of conservatives in Congress no longer buy the anti-PFC arguments. A good example is the bill co-sponsored by Reps. Peter DeFazio (D, OR) and Thomas Massie (R, KY) that would eliminate the federal cap on PFCs in exchange for reductions in federal airport grants..

BTC also criticized the practice of incumbent carriers at slot-controlled airports like DCA and LGA “slot-sitting”—i.e., using regional jets to hog slots that could easily handle much larger-capacity planes. In 2016, reports BTC, some 73% of LGA passenger aircraft had 76 or fewer seats, with similar figures at DCA. Current runway pricing practices, in which the only charge is for landing and is based on the plane’s gross weight, in effect subsidizes under-use of a scarce and valuable resource: the right to land or take off at airports for which demand (at current prices) exceeds capacity. A market-based runway pricing system, with prices varying by demand rather than by weight, would encourage airline “up-gauging,” as documented by previous FAA studies and simulation modeling of such pricing for the New York airports by Reason Foundation (http://reason.org/news/show/congestion-pricing-for-the-new). It would be foolish for Congress to mandate such a pricing system, because in doing so it would invariably carve out all kinds of exceptions for favored aviation sectors. But the good news is that the U.S. DOT changed its airport rates and charges policy to permit runway congestion pricing in 2008. The airlines litigated to overturn this change, but lost in court.

No U.S. airport has taken advantage of this opportunity, but where market-based runway pricing has taken hold is at privatized London Gatwick and London Heathrow airports. So in my view, the most likely path toward runway pricing at congested U.S. airports is to allow them to be privatized. Congress has an opportunity this year to liberalize the current obstacle course called the FAA Airport Privatization Pilot Program, opening it up to all U.S. airports without any arbitrary limits and simplifying the current double-super-majority airline approval requirement.

Finally, there are the hard-won Open Skies provisions negotiated by previous Administrations. Contrary to current efforts by the big three legacy carriers to end Open Skies with Qatar and the United Arab Emirates, Congress should resist any such efforts that might be proposed as part of FAA reauthorization. Indeed, airline competition would be enhanced by two policy changes separate from Open Skies. One would be to increase the current 25% limit on foreign ownership of U.S. airlines to at least 49% (as in Europe). Another would be to allow non-US airlines to offer commercial service between two points within the United States, presumably as extensions of current routes to and from U.S. gateways.

The legacy carriers would strongly oppose most or all of what I have suggested here. But the real question for Congress is this: whose interest should you be serving—that of millions of air travelers or that of several major incumbents subject to less and less competition as time goes on?

House Unanimous on Airport Employee Screening. On April 26th, in a unanimous vote, the House passed a bill that would increase vetting and security badge requirements for airport workers and contractors with access to secure areas. Introduced by Rep. John Katko (R, NY), the bill would also require a study on the feasibility and cost of full employee screening at airports. Katko chairs the transportation security subcommittee of the House Homeland Security Committee.

Branson Airport Lands New Airline. Privately developed Branson Airport, in Branson, MO, has had ups and downs in hosting scheduled air-carrier service. In March, the airport announced the arrival of a new low-cost carrier, Via Airlines. The airline flies regional jets, and Branson is its second hub, offering service to Austin, Dallas, Houston, Chicago, and Denver. Via’s eastern hub is at Charlotte, serving destinations in Virginia, West Virginia, and Florida.

Frankfurt Hahn Sold to Chinese Company. The German state of Rhineland-Palatinate has sold its 82.5% stake in Frankfurt Hahn Airport to HNA Airport Group for $15.8 million. The state of Hesse owns the remaining 17.5% of the airport. HNA Group manages 13 airports in China and owns Hainan Airlines there. The primary airline serving the Hahn airport is Ryanair, with 85% of airline service.

TSA Withholds Documents from Whistleblower Agency. The Office of Special Counsel (OSC), an independent federal agency that investigates reports of retaliation against whistleblowers, has been refused access by TSA to various documents it has requested. TSA contends that DHS guidelines allow it to “assert attorney-client privilege in certain cases,” which OSC disputes as illegal, arguing that there is no such privilege when one federal agency investigates another. House Oversight Committee chairman Jason Chaffetz (R, UT) has threatened to subpoena the documents if the agency does not turn them over to OSC.

Santa Rosa (CA) Airport Expanding. Increased airline service between Santa Rosa and larger airports has led to a $20 million plan to more than double the size of the small airport’s terminal. American Airlines began daily service to Phoenix Sky Harbor in February and United is considering resuming daily service to San Francisco, which it last served in 2001. Alaska offers 7 to 9 daily flights, depending on the season. And Allegiant offers weekly service to Las Vegas. As Santa Rosa Airport expands, the San Francisco Bay Area will have four, rather than three air-carrier airports, which will be welcome news for travelers faced with the metro area’s massive traffic congestion.

3-D Scanners Being Tested for Carry-On Luggage. 3-D scanning technology similar to what is already in use at many airports for checked baggage is in the testing process for screening carry-on bags. If it proves to be feasible in high-volume use, the new checkpoint scanners could enable passengers to leave electronic devices, liquids and gels in their carry-on bags, increasing throughput and convenience at checkpoints. Amsterdam Schiphol has moved into a second phase of testing the L3 ClearScan 3-D scanner in one lane at the airport. If it proves itself in high-volume use, the airport plans to start large-scale implementation by the end of the year. Four other companies are developing 3-D checkpoint scanners, and TSA and American Airlines will be testing some of them at major airports this summer.

Brazil Privatizes More Airports. In the latest round of auctions for long-term concessions of Brazilian airports, European companies emerged as winners. Germany’s Fraport won a 30-year concession for Fortaleza Airport ($485 million) and a 25-year concession for Porto Alegre Airport ($123 million). France’s Vinci bid $214 million for a 30-year concession for the Salvador Airport, and Zurich Airport bid $27 million for a 30-year concession for Florianopolis Airport. The winners contractually agreed to invest $2.13 billion in upgrading the four airports over the lifetimes of their concessions.

Bermuda Privately Finances a New Terminal. Canadian company Aecon was the winning bidder to finance, develop, operate, and maintain a new $274 million terminal at Bermuda’s L.F. Wade International Airport. The new terminal will be separate from the existing terminal, allowing the latter to operate unimpeded by the construction. The new entity Bermuda Skyport Corporation Ltd. (wholly owned by Aecon) will manage the entire airport, including the old and new terminals, under a 30-year concession.

TSA Pledges Checkpoint Improvements. Even PreCheck passengers are expressing frustration with long lines at the checkpoint. A survey by OAG of 2,500 PreCheck members found that 45% of them think the PreCheck lines are too long and are not sure five-year membership is worth the $85 price. TSA responded that as of March 2017, membership had doubled from the prior year, going from 2.3 million last March to 4.6 million this March. TSA also announced that it is making permanent its Innovation Task Force, charged with improving the air traveler experience at airports. Near-term ITF priorities are evaluating three different 3-D checkpoint scanners and testing new biometric authentication technologies.

Expand LaGuardia to Rikers Island? An April 9th Associated Press story reported a suggestion from the commission that helped persuade the city government to close the jail complex on Rikers Island (next to LaGuardia Airport): the 400 acre-property could be redeveloped as a new runway and terminal extension for the chronically congested airport. Last year LGA had the highest percentage of late arrivals among the nation’s large-hub airports. The estimated cost of demolishing the jail, cleaning up pollution, and developing the new runway was estimated at a whopping $22 billion. There are also potential airspace conflicts that would have to be worked out. Still, this is the first conceivable proposal ever advanced for adding runway capacity to LGA, and the Global Gateway Alliance is among those cheering for the idea.

Air Marshals Propose a Sensible Reform. While the overall Federal Air Marshal program is largely a waste of money, the TSA office that manages the program last month suggested a sensible reform. Why not coordinate with airlines to ensure that if a flight has an approved armed pilot in the cockpit (under the cost-effective Federal Flight Deck Officer program), then no Federal Air Marshal should be assigned to that flight. This strikes me as a no-brainer, and I’m amazed that it is not already standard practice.

Still No Opening Date for Berlin Brandenburg Airport. The endlessly delayed completion of the massive new airport for Berlin—originally scheduled to open in 2007—is still uncertain. A recent report by consultant Roland Berger estimated a 73% probability that the beleaguered terminal will open by autumn 2018. Meanwhile, the Steigenberger Airport Hotel Berlin, a four-star, 322-room hotel next to the airport completed in 2012, still sits vacant, awaiting the eventual flow of airport customers. Had this project been carried out under a long-term concession (as originally planned), there would have been very powerful financial incentives to correct the construction problems and get the terminal into service.

Atlantic City Outsourcing Screening. Another airport, Atlantic City (ACY), has joined TSA’s Screening Partnership Program, under which a TSA-approved security company will take over the screening functions from TSA. Proposals from screening companies (to TSA) were due April 25th, but so far the agency has disclosed no details, or an expected date for contract award. With around 600,000 annual enplanements, ACY has about half the volume of some of the other SPP participants, such as Orlando Sanford (1.2 million), Sarasota (also 1.2 million), and Key West (761,000).

“Canada is looking at what the next step might be [regarding airport privatization]. Its airports are split on the options. IATA [International Air Transport Association] has no second thoughts. It is against. But with a move with a degree of credibility of -3.5, it also wants the Crown Rents abolished. IATA’s position is crystal clear—it wants to both eat its cake and keep its cake. That is a clear position. Completely untenable, but clear. So, applying these marching orders to the situation of Canadian airport reform, the Canadian government was presented with this demand from IATA’s DG [Director General] Alexandre de Juniac, in Montreal in very late March: the government should not privatize Canada’s airports. Furthermore, it should eliminate the requirement for Crown Rent. This is industrial strength cake having and cake eating.”
—Andrew Charlton, “Canadian Airports and Crown Rents: IATA Does the Snout to Trough Tango,” Aviation Intelligence Reporter, May 2017

“Trump’s budget staffers . . . have ignored an elephantine program, the Federal Air Marshal Service, which provides little security at great cost. . . . The program involves paying people to ride shotgun on airliners to prevent or disrupt hijackings. Even though there are thousands of marshals, there are too few to be on much more than 5% of all flights—though the service still wouldn’t be cost-effective even if that number rose to 20%. The TSA insists marshals are placed on high-risk flights, but since no terrorist has boarded an airliner with hostile intent since 2001, it is difficult to see how that ‘risk’ is determined. . . . We have assessed a policy mix in which the air marshal budget is reduced by 75% (still leaving hundreds around for special assignments), the inexpensive program to train and arm pilots to resist hijackers is doubled, and secondary barriers to the cockpit—easily deployable and stowable—are installed. The result: better aviation security and a savings of hundreds of millions of dollars each year for both taxpayers and the airlines.”
—John Mueller and Mark Stewart, “Trump’s TSA Budget Fails to Cut the Obvious: Air Marshals,” Wired.com, March 20, 2017

“The anxieties raised by various St. Louis stakeholders are reasonable and should be addressed, and the best way to do that is by laying out the rules from the beginning. Neither passengers nor the airlines should pay more as a result of any transaction. The city should be a financial partner in the deal, with its long-term interests aligned with the private operator through an ongoing revenue share. Customer-service levels should go up based on measurable, enforceable operating standards. The successful private manager should have specific requirements and incentives for significant capital investment in the airport and ancillary economic development. Overall, the transaction should be perceived as a win for the city, the community, the airport, and the airlines.”
—Stephen Goldsmith, Harvard Kennedy School, “How Public-Private Partnerships Can Unlock the Value of an Airport,” Governing, April 4, 2017